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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube through Dell.

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Speaker 2: Let's dig a little deeper into this guidance that the

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Speaker 2: company offered. I'd say it's more than guidance, is it.

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Speaker 3: It's kind of a I don't know, kind of a

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Speaker 3: long term vision, a little bit.

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Speaker 2: Of yes, where business is going exactly, and you know,

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Speaker 2: in the tech industry, to be able to kind of

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Speaker 2: project out that far as pretty notable. Let's bring in

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Speaker 2: Ed Ludlow, who is our b Tech co anchor based

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Speaker 2: in San Francisco, and Ed, one thing that I noticed

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Speaker 2: about Dell is that this is another legacy tech company

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Speaker 2: that's getting a big boost here from the whole AI play,

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Speaker 2: and Dell is doing that through its AI servers, but

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Speaker 2: it still has another part of its conventional business that

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Speaker 2: is holding up at.

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Speaker 3: Least Yeah exactly.

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Speaker 4: I mean, you guys make really good points about is

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Speaker 4: this guidance or more it's kind of like a reset

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Speaker 4: on Dell's position in the AI market. It's another example

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Speaker 4: of like, well, if we're all sort of very hyped

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Speaker 4: up about data center builds out and in videos getting

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Speaker 4: all of this love, and we're very focused on energy,

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Speaker 4: then why do we not talk more about Dell. If

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Speaker 4: you build a data center, whether that is hyper scale

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Speaker 4: or it's an on premises smaller facility that any given

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Speaker 4: sort of software company operates themselves, Dell is likely to

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Speaker 4: play a part. You know, they assemble servers that needs

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Speaker 4: to happen. You don't just sort of put all the

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Speaker 4: chips and a pile on the floor. And so it's

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Speaker 4: taken a while for investors to kind of give Dell

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Speaker 4: credit for that. A part of the reason being that

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Speaker 4: because this buildout of infrastructure is so fast, Dell's margins

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Speaker 4: on the AI server business have really suffered because you

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Speaker 4: have to spend money to move quickly. And a big

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Speaker 4: part of the guidance they gave us through the fiscal

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Speaker 4: thirties that that profit picture for the AI server business

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Speaker 4: is really going to improve, and as you say, the

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Speaker 4: core business, which is kind of PC as well, is

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Speaker 4: supporting them do that.

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Speaker 5: In the interim, Dell stock is up two and a

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Speaker 5: half percent today, it's today fifty two week high.

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Speaker 3: Today, it's up thirty percent year to dat.

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Speaker 5: It's not an all time high that was back in

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Speaker 5: twenty twenty four, but it's certainly gone in the right

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Speaker 5: direction here. So, ed, how does the company position itself

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Speaker 5: as an AI player? Are they playing that up or

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Speaker 5: are they saying, hey, we're in a good position. How

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Speaker 5: are they kind of positioning their company as.

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Speaker 3: A yeah my story.

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Speaker 4: So right now in New York City, all of the

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Speaker 4: executives are on a stage talking about bigging themselves up,

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Speaker 4: and the main argument that they're making is that on

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Speaker 4: premises part I us talking about. So in the future,

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Speaker 4: Dell argues eighty five percent of all enterprises are going

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Speaker 4: to have some form of on prem footprint themselves, and Dell,

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Speaker 4: which has a rich history of selling to businesses of

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Speaker 4: small and large and the public sector, is best position

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Speaker 4: to participate in that. And the idea, right is that

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Speaker 4: this all started with the hyperscalers, the cloud computing companies

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Speaker 4: and their capital expenditures. But the ripple effect is that

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Speaker 4: we're now seeing smaller companies in software in particular, justified

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Speaker 4: budgets to spend on their own technology because they see

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Speaker 4: a return on the other side, literally revenues driven by AI.

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Speaker 4: So that's what Dell's argument is here. You know, you guys,

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Speaker 4: the story is that through twenty thirty, they've basically almost

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Speaker 4: doubled their forecast for the top and bottom line five

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Speaker 4: to seven to nine percent top line growth and adjusted

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Speaker 4: EPs growth of around fifteen percent. And a big part

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Speaker 4: of that story is just more people doing business with them.

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Speaker 2: So one thing that stuck out to me Ed is

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Speaker 2: the comments from the CEO, Jeff Clark, saying we were

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Speaker 2: all wrong about how big we thought the AI market

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Speaker 2: was two years ago, and it's nothing but bigger. Does

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Speaker 2: do have a reputation as being conservative when kind of

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Speaker 2: guiding along its its vision or is this some a

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Speaker 2: company that usually nails it in terms of its forecasts?

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Speaker 4: You know, like, I don't know, conservative is fair? I mean,

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Speaker 4: like you have to assess the business that they're doing

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Speaker 4: in the here and now and the pipeline of business

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Speaker 4: that they say has to come. And so like Dina

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Speaker 4: Bassar College did a really good job of explaining that

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Speaker 4: in the quarter, there is the sales that they've had

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Speaker 4: committed to them. They booked five point six billion dollars

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Speaker 4: of new AI server business in the quarter. They shipped

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Speaker 4: eight point two billion dollars worth of business in the quarter,

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Speaker 4: so like actual sales, and then in the future they

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Speaker 4: have a backlog of twelve billion. It's not that new

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Speaker 4: an idea that there's a pipeline of business. It takes

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Speaker 4: time to assemble servers, you know, ship them out onto location.

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Speaker 4: The thing that they need to justify is like, what's

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Speaker 4: the value add that they do. So I told you

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Speaker 4: earlier in this segment they say margins will improve. The

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Speaker 4: thing is that all they're really doing is assembling something.

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Speaker 4: They're not sort of contributing some amazing technology. That's what

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Speaker 4: Nvidio is doing.

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Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 3: App Lovin stocks up.

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Speaker 5: That's despite the fact that the app love and this

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Speaker 5: company's being probe by the SEC over its data collection practices.

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Speaker 3: I don't know how to play that.

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Speaker 2: I know the stock is the best performing NAZAC member

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Speaker 2: in the second half of this year, up seventy nine percent.

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Speaker 5: Okay, I have to start with the pro We're going

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Speaker 5: to go to Nathan A Do Bloomberg Intelligence tech anlogy

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Speaker 5: research analysts.

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Speaker 3: Nathan, I don't know a lot about this company.

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Speaker 5: Tell our viewers and our listeners about app love and

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Speaker 5: number one and number two?

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Speaker 6: What is this?

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Speaker 3: Let's the SEC interested in?

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Speaker 7: So essentially Applevin is in the business of helping advertisers

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Speaker 7: or helping rather owners of apps primary apps on the

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Speaker 7: iOS devices on Android, Helping publishers sell at space inside

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Speaker 7: of their apps to potential advertisers, meaning that help app

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Speaker 7: app owners advertise, you know, make money off of selling

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Speaker 7: at space to advertisers, whether that be brands or another

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Speaker 7: game potentially, and Applevin typically charges a fee in mediating

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Speaker 7: that transactions. So going on to the SEC prop or

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Speaker 7: potential SEC proprather because nothing is confirmed as of now.

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Speaker 7: SEC allegedly is looking into its data collection practices. And

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Speaker 7: you know, there was a couple of links made to

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Speaker 7: short salary reports that surfers back in February, and that

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Speaker 7: was also around the company business practices, particularly in its

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Speaker 7: inflation of app installation numbers. And actually, you know, in

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Speaker 7: addition to this SEC probe or potential SEC probe, rather,

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Speaker 7: there was a class action lawsuit file in March and

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Speaker 7: it's it's it could advance a trial, according to our

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Speaker 7: litigation analyst, Matthew based in Washington, d C. And so

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Speaker 7: that is another that's actually it could be the bigger

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Speaker 7: fish fish to fry for able in addition to, you know,

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Speaker 7: alongside this SEC probe. From from my point of view.

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Speaker 2: Okay, so there's negative catalysts for sure for this company.

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Speaker 2: Yet as what points out, the stock is rising today.

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Speaker 2: Is this because Apple love it is a meme stock.

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Speaker 7: Well, I don't know about Eplepin being a meme stock,

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Speaker 7: but I mean, the certainly haven't made up all of

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Speaker 7: the losses that we saw yesterday. The stock was down

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Speaker 7: fourteen fifteen percent in one day, and then you've made

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Speaker 7: up partially that in today's gains. And because the SEC

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Speaker 7: probe is not confirmed, and typically the biggest risk from

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Speaker 7: this potential SEC probe is a penalty. And if we

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Speaker 7: look at SEC's published report for its fiscal twenty twenty four,

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Speaker 7: the heaviest fine was one hundred million Meanwhile, Aplevin at

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Speaker 7: the moment is pumping pumping out two billion in pre

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Speaker 7: cash flow every year. So I think the SEC risk

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Speaker 7: alone is it wouldn't make much of a financial impact

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Speaker 7: to Aplevin per se, you know. But the bigger risk

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Speaker 7: that we're watching here is definitely that potential class action

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Speaker 7: lawsuit because our analyst Matthew estimate that that could be

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Speaker 7: seven hundred and fifty million in fine if that, you know,

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Speaker 7: if that goes to trials and Ablevin couldn't win a

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Speaker 7: motion to dismiss in the next couple of months.

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Speaker 5: So yeah, Nathan, what does has a company responded at

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Speaker 5: all or talked about this?

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Speaker 3: Is this issue?

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Speaker 7: So the only allegations that the company denied was the

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Speaker 7: allegations from the shortsellers back in February. The company has

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Speaker 7: not outwardly denied the allegations or the potential allegations rather

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Speaker 7: from the late SEC probe. So that's where we stand

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Speaker 7: right now.

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Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Coarclay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 5: All right, I'm thinking Constellation brands. You think in Corona Beer,

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Speaker 5: Modella beer, Pacifico beer that got some wines stocks down

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Speaker 5: thirty five percent here to date, and I'm thinking it

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Speaker 5: has to do with the crackdown on.

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Speaker 3: The immigration tariffs as well and those brands.

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Speaker 5: So I'm thinking of all that kind of kind of

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Speaker 5: just kind of weighing down on the stock.

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Speaker 3: Let's checking in with Ken Chay.

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Speaker 5: He's the senior consumer products analyst for Bloomberg Intelligence. Can

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Speaker 5: talk to us about Constellation brands. What's weighing on the stock,

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Speaker 5: what's the company doing about it?

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Speaker 8: Yeah, Hi, Paul and Scarlet. Well, you mentioned two of

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Speaker 8: the factors right there. It's definitely a slow beer market.

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Speaker 8: Tariffs are playing a role, and also some of the crackdown,

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Speaker 8: you know, the ice has had in inner community is

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Speaker 8: hurting the Hispanic community and their socialization trends. All these

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Speaker 8: things have been a factor for the last couple of quarters. Today,

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Speaker 8: the company said that their beer volumes were not quite

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Speaker 8: as poor as a lot of street anamals expected today,

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Speaker 8: but the pressures are still on and they're very real

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Speaker 8: for this company, and that's because they're they're suite of

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Speaker 8: products as you mentioned Corona Medello, these off these command

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Speaker 8: high price points about twice the level of a popular beer.

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Speaker 8: So in times where consumers are pulling back a little

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Speaker 8: cautious about expenditures, I remember, you know, you've had high

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Speaker 8: inflationary pricing in this category for the last few years.

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Speaker 8: These brands aren't doing so well right now, and then

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Speaker 8: compounding that with some of the factors that I mentioned

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Speaker 8: and some longer term issues like cannabis substitution things we

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Speaker 8: talked about GLP one user not drinking as much, moderation

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Speaker 8: among gen Z. All these things are weighing of a

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Speaker 8: company here right now.

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Speaker 2: Yeah, I'm super interested in what you said about the

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Speaker 2: last part, Like the structural changes in consumer tastes, especially

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Speaker 2: from gen Z younger people overall, beers just not where

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Speaker 2: people want to be spending their money necessarily.

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Speaker 8: That seems to be the case. You know, it's been

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Speaker 8: around a long time. It's one hundred and fifteen billion

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Speaker 8: dollar market that is growing very slowly. It's essentially flat.

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Speaker 8: In fact, volumes are expected to be down low single

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Speaker 8: digit this year, So clearly it's a very mature category.

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Speaker 8: And what we've seen in over the last few years

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Speaker 8: is consumers just want different tastes. You know, you have

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Speaker 8: a proliferation of the ray to drink cocktails, you know,

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Speaker 8: like truly and white clothes and more sophisticated you know,

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Speaker 8: Margarita's in a can and so on faster a lot

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Speaker 8: of the consumer who wants tastes experimentation are going And

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Speaker 8: then you have other more mundane factors like just you know,

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Speaker 8: calorie more conscious, conscientious, calorie counts and all these things

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Speaker 8: are just weighing on this very very mature industry.

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Speaker 5: So somebody like Constellation Brands, did they go out and

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Speaker 5: look to maybe buy some of these brands or verticals

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Speaker 5: that within the spirit's business may be growing.

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Speaker 8: Well, they've had a kind of a mixed history of

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Speaker 8: m and A over the last few years. I'll put

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Speaker 8: it up me kind and say that way not really.

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Speaker 8: You know, they're downsizing their wine and spirit segment and

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Speaker 8: try to shift it to more of a high end mix,

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Speaker 8: which I think they're having success with. But what that

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Speaker 8: does is it may their beer business even that much

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Speaker 8: more important. It's now about eighty five percent of their sales,

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Speaker 8: so as beer goes. I mean, the company has really

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Speaker 8: good brands and a lot of brand loyalty there, but

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Speaker 8: again there's not a lot of wiggle room there.

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Speaker 2: So, so with beer becoming less popular, and you mentioned

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Speaker 2: other big trends like ozebic, weight loss, drugs, and greater

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Speaker 2: cannabis use, what is Constellation doing about non alcoholic beverages.

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Speaker 8: So they've rolled out a non alcoholic corona brand. They've

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Speaker 8: come out a couple of years ago. They came out

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Speaker 8: with a low calorie brand called Medelo Oro, a corona

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Speaker 8: no alcohol I think I mentioned. So those two brands,

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Speaker 8: while they're relatively small, they see, you know, a lot

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Speaker 8: of opportunity that's on trend with what you said, so

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Speaker 8: you know they're doing that. They're also modifying some of

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Speaker 8: their portfolio for more taste. There's the consumers that want

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Speaker 8: a lot of taste are coming out with you know,

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Speaker 8: a fruity surveysa and so they're doing as much as

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Speaker 8: they can to stay on trend with consumers.

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Speaker 2: I love myself a great fruit beer. Yeah there's a

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Speaker 2: German great fruit beer that I really like.

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Speaker 3: Yeah, tastes good.

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Speaker 5: So this talk to U about this legal cannabis and obesity,

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Speaker 5: drugs and the impact that's having on kind of the

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Speaker 5: beer business, the spirits business overall. Can is that something

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Speaker 5: that a lot of your companies are calling out.

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Speaker 8: Yes, As a matter of fact, Paul, yesterday we came

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Speaker 8: out with our BI came out with our fourth annual

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Speaker 8: consumer survey on beverage preferences, and again we see that

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Speaker 8: consumers are substituting cannabis for alcohol. Of consumers that do

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Speaker 8: partake in cannabis, now more than half have substituted for

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Speaker 8: alcohol at least once a week, and that's up from

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Speaker 8: forty six percent last year. So that's a trend that

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Speaker 8: just keeps moving. Now you're seeing a lot of these

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Speaker 8: cannabis companies coming out with THC products beverages that are

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Speaker 8: sold in mainstream liquor stores. You know, traditional cannabis, legal

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Speaker 8: cannabis sold in dispensaries, It was not really a big hit.

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Speaker 8: But now that some of these federally legal HEMP based

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Speaker 8: THC products beverages are sold in liquor stores right next

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Speaker 8: to the beer rile in about half the states of

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Speaker 8: the country, that's really chipping away also at beer consumption.

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Speaker 2: A final question to you, Ken, what about return of

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Speaker 2: cash to shareholders. I'm looking at the dividend yield about

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Speaker 2: two point nine percent if you're being generous. Is consulation

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Speaker 2: brands still able to make good on its dividends continue

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Speaker 2: buying back its chairs.

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Speaker 8: Yeah, that's an important point, Scarlett. Yes, they can despite

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Speaker 8: the pressure on sales. Believe it or not, the operating

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Speaker 8: margins the Constellation generates are best in class. They're about

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Speaker 8: twice that of other alcoholic beverage companies in general. So

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Speaker 8: they have strong cash flows. As a matter of fact,

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Speaker 8: they're winding down construction of a brewery right now. Over

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Speaker 8: the over the next couple of years, you're going to

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Speaker 8: see free cash flow likely rising. So it's high in

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Speaker 8: rising and that's enabling them to continue to meet their

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Speaker 8: commitments to share share buybacks and dividends.

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Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: Let's switch gears and take a look at some of

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Speaker 2: the hardware companies or I should say software companies. Once

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Speaker 2: upon a time it was hardware, and I'm talking about IBM.

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Speaker 2: It's a legacy tech company and it is the latest

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Speaker 2: legacy tech company to partner up with an AI startup.

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Speaker 2: Arog Rana is tech analysts here at Bloomberg Intelligence on

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Speaker 2: an rog hear this fancy announcement about IBM inking a

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Speaker 2: partnership with Anthropic to integrate this Claud family of large

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Speaker 2: language models into certain IBM software. What I noticed is

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Speaker 2: that there's no Toller amount mentioned at all. So how

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Speaker 2: do you evaluate this partnership versus other tie ups.

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Speaker 6: See, when you come to a company like IBM, I

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Speaker 6: think they have done a very good job of being

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Speaker 6: open and partnering with other vendors. I think the acquisition

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Speaker 6: of red Hat was the first such example a few

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Speaker 6: years ago. And frankly speaking, the company has turned around

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Speaker 6: quite a bit. Now it's more of a software company

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Speaker 6: than it is a service order hardware company. So when

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Speaker 6: you look at today's announcements, IBM still has a lot

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Speaker 6: of footprint in legacy companies and their internal infrastructure, whether

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Speaker 6: that's a regulated entity, whether that's an on premise software.

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Speaker 6: What they're basically doing saying is for these companies who

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Speaker 6: want to add more AI capabilities into their infrastructure, we're

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Speaker 6: going to use one of the best models that's out there,

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Speaker 6: and that's Anthropic. They're not just so depending on IBM's

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Speaker 6: own internal models, but you know, we see more and

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Speaker 6: more of that happening that companies like IBM and other

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Speaker 6: services companies will go out and partner with you know, anthropic,

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Speaker 6: with open AI which M and I and give more

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Speaker 6: enterprise capabilities to to vendors, to companies.

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Speaker 5: Basically, how does anthropic differ from a open AI if

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Speaker 5: at all.

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Speaker 6: It's a very good question, Pauland right now what we're

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Speaker 6: seeing is entropping is pushing more and more stuff on

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Speaker 6: the corporate side or the enterprise side, on open AI side.

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Speaker 6: You know, their code business is still chat GPT, which

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Speaker 6: is the app, and that's more of a consumer app

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Speaker 6: right now. And the question is you know which one

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Speaker 6: of the models will somebody use, Whether if you are

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Speaker 6: let's say a JP Morgan or a City Corp, you

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Speaker 6: know you'll be going to be using one of their

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Speaker 6: models or an open source model. I think they're going

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Speaker 6: to be using all of the models. What entthropic relationship

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Speaker 6: with IBM, does it actually helps them to spread the

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Speaker 6: word out across their entire customer base. So if you

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Speaker 6: are trying to get more coding done, for example, in

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Speaker 6: an IT department, and you have all the legacy products

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Speaker 6: that they're now you can use you know, an AI

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Speaker 6: model from Nthropic rather than using you know, whatterver tools

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Speaker 6: you had before.

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Speaker 2: Okay, So it makes sense why Anthropic is a good

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Speaker 2: fit for IBM or how it's going to incorporate Anthropic

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Speaker 2: into IT software. But what does IBM specifically offer Anthropic?

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Speaker 2: What access does IBM have that Anthropic wants and needs.

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Speaker 6: That's another excellent question. And in this case you're looking

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Speaker 6: at IBM's entire customer base. IBM has a very large

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Speaker 6: services business or IBM consulting. These consultants will go out

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Speaker 6: and sell Anthropic software into the enterprises and say, hey, bank,

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Speaker 6: let me help you to you know, automate this particular

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Speaker 6: process and you can use it with this software. It

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Speaker 6: drives their consulting business and it also helps out their

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Speaker 6: software business, which is fairly popular right.

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Speaker 5: Now, IBM hitting all time high here today on a rug.

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Speaker 5: This stock has found a new life, has it?

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Speaker 6: Absolutely? And this is something that we've been saying it

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Speaker 6: for almost five years now that you know, the acquisition

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Speaker 6: of red Hat completely changed it. You know, if you

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Speaker 6: go back and look at some of the comments we've

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Speaker 6: made on TV about IBM. Prior to red Hat, it

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Speaker 6: was a very closed company. It only wanted to sell

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Speaker 6: their own products to people and was not very keen

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Speaker 6: on embracing you know, what I would say is open source.

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Speaker 6: With the acquisition of red Hat and the company saying,

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Speaker 6: you know what, red Hat can work with any cloud provider,

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Speaker 6: I think that was the biggest difference to me was

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Speaker 6: it allowed red Hat to work with companies but based

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Speaker 6: on Amazon Web Services or Microsoft, so they were not

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Speaker 6: just pushing their own cloud products, and I think that

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Speaker 6: really made a difference. Their software business has been doing

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Speaker 6: so well comparatively to the rest of the world, and

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Speaker 6: I think that's where you see the market validation that

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Speaker 6: this is the right strategy for them.

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